First American Financial Reports Fourth Quarter 2011 Results

—Reports Earnings of 38 Cents per Diluted Share for the Fourth Quarter—
—Increases Quarterly Dividend by 33 Percent—


February 23, 2012, SANTA ANA, Calif.

First American Financial Corporation (NYSE: FAF), a leading global provider of title insurance and settlement services for real estate transactions, today announced financial results for the fourth quarter and year ended Dec. 31, 2011.

Download the complete release as a PDF (PDF 89kb)

Current Quarter Highlights

  • Title Insurance and Services segment adjusted pretax margin of 10.0 percent
    • GAAP pretax margin of 7.7 percent, which includes $19.2 million charge for final settlement of the Bank of America lawsuit and $2.0 million in net realized investment losses
  • Commercial division revenues of $107.3 million, up 10 percent compared to last year
  • International division revenues of $87.4 million, up 5 percent compared to last year
  • Specialty Insurance segment pretax margin of 13.9 percent
  • Cash flow from operations of $107.6 million

Selected Financial Information
($ in millions, except per share data)

Selected Financial Information

($ in millions, except per share data) 

 

 
 

 

For the Three Months Ended

December 31



   

For the Full Year Ended

December 31

 

 

2011


 

2010


 

2011


 

2010

 

Total revenues

$  996.6


 

$ 1,024.7


 

$  3,820.6


 

$ 3,906.6

 

Income before taxes

66.1


 

74.6


 

130.3


 

212.1

 

 

 

 

 

 

 

 

 
 

Net income

$    40.2


 

$     47.1


 

$      78.3


 

$     127.8

 

Net income per diluted share

0.38


 

0.44


 

0.73


 

1.20

 
               


Total revenues for the fourth quarter of 2011 were $996.6 million, a decline of 3 percent relative to the fourth quarter of 2010. Net income in the current quarter was $40.2 million, or 38 cents per diluted share, compared with net income of $47.1 million, or 44 cents per diluted share, in the fourth quarter of 2010. The current quarter results include a $19.2 million charge, or 11 cents per diluted share, for the final settlement of the Bank of America lawsuit. The current quarter results also include net realized investment losses of $2.2 million, or 1 cent per diluted share, compared with $2.8 million, or 2 cents per diluted share, in the fourth quarter of 2010.

Total revenues for the full year of 2011 were $3.8 billion, a decline of 2 percent relative to the prior year. Net income was $78.3 million, or $0.73 per diluted share, compared with $127.8 million, or $1.20 per diluted share, in 2010.  The results for the full year 2011 include charges of $77.5 million, or 43 cents per diluted share, comprised of a total of $32.2 million taken in the third and fourth quarters for settlement of the Bank of America lawsuit and $45.3 million taken in the first quarter in connection with the guaranteed valuation product offered in Canada. In addition, the full year results for 2011 include $9.2 million of net realized investment losses, or 5 cents per diluted share, compared with net realized investment gains of $2.2 million, or 1 cent per diluted share, in 2010.

"We are pleased with our company's performance in the fourth quarter," said Dennis J. Gilmore, chief executive officer at First American Financial Corporation. "Our efficiency initiatives, coupled with increased commercial and refinance activity, enabled us to deliver our strongest title segment margins of the year.

"Looking forward, we see positive momentum with total open orders per day up 19 percent in January compared with the fourth quarter, primarily driven by commercial and refinance activity. We also expect the HARP 2.0 program to stimulate additional refinance activity beginning in the second quarter. Given our efficient cost structure and conservative balance sheet, we are well positioned to capitalize on a gradually improving economy.

"I am also pleased to report that our board of directors has approved a 33 percent increase in the regular quarterly dividend from $0.06 per common share to $0.08 per share commencing in the first quarter of 2012."

Title Insurance and Services

($ in millions, except average revenue per order) 

 

 
 

 

For the Three Months Ended

December 31

 

 

2011


 

2010

 

Total revenues                                   

$   922.5


 

$    949.7

 

 

 

 

 
 

Income before taxes

$     71.4


 

$      81.3

 

Pretax margin

7.7%


 

8.6%

 

 

 

 

 
 

Direct open orders

320,100


 

347,700

 

Direct closed orders

249,700


 

296,000

 

 

 

 

 
 

Commercial*


 

 

 
 

      Total revenues

$     107.3


 

$      97.7

 

      Open orders

17,100


 

16,900

 

      Closed orders

10,200


 

9,800

 

      Average revenue per order

$   8,400


 

$    8,100

 

 

 

 

 
 

    * Includes commercial activity from the National Commercial Services division only.

 
       


Total revenues for the Title Insurance and Services segment were $922.5 million, a 3 percent decline from the same quarter of 2010. Direct premiums and escrow fees were down 4 percent as compared to the fourth quarter of 2010. This was due to a 16 percent decline in the number of direct title orders closed in the quarter, which reflects the decline in mortgage originations, largely offset by higher average revenue per order. Average revenue per direct title order was $1,504, an increase of 14 percent, compared with the fourth quarter of 2010. This was primarily due to a shift in the mix of revenues to higher-premium resale and commercial transactions, as well as an increase in the average revenue per closed commercial order. Agent premiums were lower by 2 percent in the current quarter, which is comparable with the 1 percent decline in direct premiums we experienced in the third quarter, reflecting the normal reporting lag of approximately one quarter.

Information and other revenues were $153.7 million this quarter, down 4 percent as compared to the same quarter of last year, driven by the same factors impacting direct title operations. Total investment income was up 7 percent in the fourth quarter, primarily reflecting lower net realized investment losses compared to last year.

Personnel costs were $287.5 million in the fourth quarter, a decrease of $12.3 million, or 4 percent, compared with the fourth quarter of 2010. This decline was primarily due to a reduction in  headcount and reduced costs related to employee benefit plans.  

Other operating expenses were $167.5 million in the fourth quarter, down $19.4 million, or 10 percent, compared with the fourth quarter of 2010. This decrease reflects reductions in professional and other outside service expenses in the current quarter.

The provision for policy losses and other claims was $64.5 million in the fourth quarter, or 8.6 percent of title premiums and escrow fees, up $21.9 million compared with the same quarter of the prior year. Excluding the $19.2 million charge for the final settlement of the Bank of America lawsuit, the current quarter rate of 6.0 percent reflects an ultimate loss rate of 5.6 percent for the current policy year and a net increase in the loss reserve estimates for prior policy years.

Pretax income for the Title Insurance and Services segment was $71.4 million in the fourth quarter, compared with $81.3 million in the fourth quarter of 2010, or a decrease of 12 percent. Pretax margin was 7.7 percent in the current quarter, compared with 8.6 percent in the fourth quarter of 2010.  

Specialty Insurance

($ in millions) 

 

 
 

 

For the Three Months Ended

December 31

 

 

2011


 

2010

 

Total revenues

$72.2


 

$72.3

 

 

 

 

 
 

Income before taxes

$  10.0


 

$10.3

 

Pretax margin

13.9%


 

14.3%

 
       


Total revenues for the Specialty Insurance segment were $72.2 million in the fourth quarter of 2011, essentially flat compared with the fourth quarter of 2010. Pretax margin was 13.9 percent, down from 14.3 percent in the fourth quarter of 2010. The overall loss ratio in the Specialty Insurance segment was 54 percent in both the current quarter and the prior year.  

Dividend Increase

The board of directors has approved a 33 percent increase in the regular quarterly dividend from $0.06 per common share to $0.08 per share commencing in the first quarter of 2012.  The board of directors declared the $0.08 per share cash dividend payable on April 16, 2012, to shareholders of record as of March 30, 2012.

Teleconference/Webcast

First American's fourth quarter and full year 2011 results will be discussed in more detail on Thursday, Feb. 23, 2012, at 11 a.m. ET, via teleconference. The toll-free dial-in number is (800) 593-8971. Callers from outside the United States may dial (212) 547-0240. The pass code for the event is "First American."

The live audio webcast of the call will be available on First American's website at www.firstam.com/investor. An audio replay of the conference call will be available through Feb. 28, 2012, by dialing (203) 369-1811. An audio archive of the call will also be available on First American's investor website.

About First American

First American Financial Corporation (NYSE: FAF) is a leading provider of title insurance and settlement services to the real estate and mortgage industries, that traces its heritage back to 1889. First American and its affiliated companies also provide title plant management services; title and other real property records and images; valuation products and services; home warranty products; property and casualty insurance; and banking, trust and investment advisory services. With revenues of $3.8 billion in 2011, the company offers its products and services directly and through its agents and partners in all 50 states and abroad. More information about the company can be found at www.firstam.com.

Website Disclosure

First American posts information of interest to investors at www.firstam.com/investor. This includes opened and closed title insurance order counts for its direct title insurance operations, which are posted approximately 12 days after the end of each month.

Forward-Looking Statements

Certain statements made in this press release and the related management commentary and responses to investor questions, including but not limited to those related to the effects of the HARP 2.0 program, an improving economy, future performance, expense management, and future organic growth and strategic acquisitions are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements may contain the words "believe," "anticipate," "expect," "plan," "predict," "estimate," "project," "will be," "will continue," "will likely result," or other similar words and phrases. Risks and uncertainties exist that may cause results to differ materially from those set forth in these forward-looking statements. Factors that could cause the anticipated results to differ from those described in the forward-looking statements include: interest rate fluctuations; changes in the performance of the real estate markets; volatility in the capital markets; unfavorable economic conditions; impairments in the company's goodwill or other intangible assets; changes in measures of the strength of the company's title insurance underwriters, including ratings and statutory surpluses; increased claims or other costs and expenses attributable to the company's use of title agents; failures at financial institutions where the company deposits funds; changes in applicable government regulations; heightened scrutiny by legislators and regulators of the company's Title Insurance and Services segment and certain other of the company's businesses; reform of government-sponsored mortgage enterprises; limitations on access to public records and other data; regulation of title insurance rates; inability of the company's subsidiaries to pay dividends or repay funds; expenses of and funding obligations to the pension plan; material variance between actual and expected claims experience; systems interruptions and intrusions, wire transfer errors or unauthorized data disclosures; inability to realize the benefits of the company's offshore strategy; product migration; increases in the size of the company's customers; losses in the company's investment portfolio; and other factors described in the company's quarterly report on Form 10-Q for the quarter ended September 30, 2011, as filed with the Securities and Exchange Commission. The forward-looking statements speak only as of the date they are made. The company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.

Use of Non-GAAP Financial Measures

This news release and related management commentary contain certain financial measures that are not presented in accordance with generally accepted accounting principles (GAAP), including an adjusted pretax margin. The company is presenting these non-GAAP financial measures because they provide the company's management and investors with additional insight into the operational performance of the company relative to earlier periods and relative to the company's competitors. The company does not intend for these non-GAAP financial measures to be a substitute for any GAAP financial information. In this news release, these non-GAAP financial measures have been presented with, and reconciled to, the most directly comparable GAAP financial measures. Investors should use these non-GAAP financial measures only in conjunction with the comparable GAAP financial measures.

(Additional Financial Data Follows)

 

 
 

 
 

First American Financial Corporation

Summary of Consolidated Financial Results and Selected Information

(in thousands, except per share amounts and title orders)

(unaudited)

 

 

 

 

 

 

 

 

 
 

 

For the Three Months Ended


 

For the Twelve Months Ended

 

 

December 31


 

December 31

 

 

2011


 

2010


 

2011


 

2010

 

 

 

 

 

 

 

 

 
 

 

 

 

 

 

 

 

 
 

Total revenues

$  996,566


 

$ 1,024,740


 

$3,820,574


 

$3,906,612

 

 

 

 

 

 

 

 

 
 

Income before income taxes

$   66,116


 

$     74,583


 

$   130,293


 

$   212,106

 

Income tax expense

25,738


 

26,839


 

51,714


 

83,150

 

Net income

40,378


 

47,744


 

78,579


 

128,956

 

Less: Net inc. attributable to noncontrolling interests

151


 

650


 

303


 

1,127

 

Net income attributable to the Company

$   40,227


 

$     47,094


 

$     78,276


 

$   127,829

 

 

 

 

 

 

 

 

 
 

Net income per share attributable to stockholders:


 

 

 

 

 

 

 
 

    Basic

$       0.38


 

$         0.45


 

$        0.74


 

$        1.23

 

    Diluted

$       0.38


 

$         0.44


 

$        0.73


 

$        1.20

 

 

 

 

 

 

 

 

 
 

Cash dividends per share

$       0.06


 

$         0.06


 

$        0.24


 

$        0.18

 

 

 

 

 

 

 

 

 
 

Weighted average common shares outstanding:


 

 

 

 

 

 

 
 

    Basic

105,474


 

104,330


 

105,197


 

104,134

 

    Diluted

107,111


 

106,413


 

106,914


 

106,177

 

 

 

 

 

 

 

 

 
 

Selected Title Information


 

 

 

 

 

 

 
 

 

 

 

 

 

 

 

 
 

Title orders opened

320,100


 

347,700


 

1,254,100


 

1,469,100

 

 

 

 

 

 

 

 

 
 

Title orders closed

249,700


 

296,000


 

917,500


 

1,079,000

 

 

 

 

 

 

 

 

 
 

Paid title claims

$  111,317


 

$     78,499


 

$   347,818


 

$   314,046

 
               


First American Financial Corporation

Selected Balance Sheet Information

(in thousands)

(unaudited)

 

 

 

 

 

 
 

 

 

December 31,

2011


 

December 31,

2010

 

 

 

 

 

 
 

Cash and cash equivalents


 

$      418,299


 

$     728,746

 

Investment portfolio


 

2,642,917


 

2,683,038

 

Goodwill and other intangible assets


 

878,414


 

882,081

 

Total assets


 

5,370,337


 

5,821,826

 

Reserve for claim losses


 

1,014,676


 

1,108,238

 

Notes payable


 

299,975


 

293,817

 

Total stockholders' equity


 

2,028,600


 

1,980,017

 
         


First American Financial Corporation

Segment Information

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 
 

For the Three Months Ended


 

 

Title


 

Specialty


 

Corporate

 

December 31, 2011

Consolidated


 

Insurance


 

Insurance


 

(incl. Elims.)

 

Revenues


 

 

 

 

 

 

 
 

Direct premiums and escrow fees

$   443,350


 

$   375,605


 

$     67,745


 

$             -

 

Agent premiums

377,553


 

377,553


 

-


 

-

 

Information and other

155,268


 

153,741


 

1,531


 

(4)

 

Investment income

22,593


 

17,670


 

2,670


 

2,253

 

Net realized investment (losses) gains*

(2,198)


 

(2,029)


 

275


 

(444)

 

 

996,566


 

922,540


 

72,221


 

1,805

 

Expenses


 

 

 

 

 

 

 
 

Personnel costs

311,977


 

287,486


 

13,421


 

11,070

 

Premiums retained by agents

301,900


 

301,900


 

-


 

-

 

Other operating expenses

181,190


 

167,530


 

9,913


 

3,747

 

Provision for policy losses and other claims

101,210


 

64,517


 

36,693


 

-

 

Depreciation and amortization

19,905


 

18,057


 

1,058


 

790

 

Premium taxes

11,304


 

10,176


 

1,128


 

-

 

Interest

2,964


 

1,442


 

4


 

1,518

 

 

930,450


 

851,108


 

62,217


 

17,125

 

 

 

 

 

 

 

 

 
 

Income (loss) before income taxes

$     66,116


 

$     71,432


 

$     10,004


 

$    (15,320)

 

 

 

 

 

 

 

 

 
 

 

 

 

 

 

 

 

 
 

 

 

 

 

 

 

 

 
 

For the Three Months Ended


 

 

Title


 

Specialty


 

Corporate

 

December 31, 2010

Consolidated


 

Insurance


 

Insurance


 

(incl. Elims.)

 

Revenues


 

 

 

 

 

 

 
 

Direct premiums and escrow fees

$   458,991


 

$   389,493


 

$     69,498


 

$             -

 

Agent premiums

384,978


 

384,978


 

-


 

-

 

Information and other

160,579


 

160,569


 

-


 

10

 

Investment income

22,982


 

17,592


 

2,721


 

2,669

 

Net realized investment (losses) gains*

(2,790)


 

(2,954)


 

67


 

97

 

 

1,024,740


 

949,678


 

72,286


 

2,776

 

Expenses


 

 

 

 

 

 

 
 

Personnel costs

322,763


 

299,763


 

11,718


 

11,282

 

Premiums retained by agents

308,568


 

308,568


 

-


 

-

 

Other operating expenses

202,940


 

186,889


 

10,403


 

5,648

 

Provision for policy losses and other claims

80,438


 

42,625


 

37,813


 

-

 

Depreciation and amortization

21,278


 

19,411


 

1,137


 

730

 

Premium taxes

9,491


 

8,588


 

903


 

-

 

Interest

4,679


 

2,494


 

4


 

2,181

 

 

950,157


 

868,338


 

61,978


 

19,841

 

 

 

 

 

 

 

 

 
 

Income (loss) before income taxes

$     74,583


 

$     81,340


 

$     10,308


 

$    (17,065)

 

 

 

 

 

 

 

 

 
 

*Includes other-than-temporary impairment (OTTI) losses recorded in earnings.


 

 
 
               


First American Financial Corporation

Segment Information

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 
 

For the Twelve Months Ended


 

 

Title


 

Specialty


 

Corporate

 

December 31, 2011

Consolidated


 

Insurance


 

Insurance


 

(incl. Elims.)

 

Revenues


 

 

 

 

 

 

 
 

Direct premiums and escrow fees

$1,634,177


 

$1,360,512


 

$   273,665


 

$             -

 

Agent premiums

1,491,943


 

1,491,943


 

-


 

-

 

Information and other

621,483


 

619,951


 

1,531


 

1

 

Investment income

82,153


 

73,883


 

10,380


 

(2,110)

 

Net realized investment (losses) gains*

(9,182)


 

(7,162)


 

1,406


 

(3,426)

 

 

3,820,574


 

3,539,127


 

286,982


 

(5,535)

 

Expenses


 

 

 

 

 

 

 
 

Personnel costs

1,186,479


 

1,104,841


 

51,389


 

30,249

 

Premiums retained by agents

1,195,282


 

1,195,282


 

-


 

-

 

Other operating expenses

753,750


 

693,541


 

38,106


 

22,103

 

Provision for policy losses and other claims

420,136


 

270,697


 

149,439


 

-

 

Depreciation and amortization

76,889


 

69,229


 

4,197


 

3,463

 

Premium taxes

45,663


 

40,972


 

4,691


 

-

 

Interest

12,082


 

5,923


 

17


 

6,142

 

 

3,690,281


 

3,380,485


 

247,839


 

61,957

 

 

 

 

 

 

 

 

 
 

Income (loss) before income taxes

$   130,293


 

$   158,642


 

$     39,143


 

$    (67,492)

 

 

 

 

 

 

 

 

 
 

 

 

 

 

 

 

 

 
 

 

 

 

 

 

 

 

 
 

For the Twelve Months Ended


 

 

Title


 

Specialty


 

Corporate

 

December 31, 2010

Consolidated


 

Insurance


 

Insurance


 

(incl. Elims.)

 

Revenues


 

 

 

 

 

 

 
 

Direct premiums and escrow fees

$1,663,956


 

$1,391,093


 

$   272,863


 

$             -

 

Agent premiums

1,517,704


 

1,517,704


 

-


 

-

 

Information and other

628,504


 

628,494


 

-


 

10

 

Investment income

94,262


 

75,517


 

11,876


 

6,869

 

Net realized investment gains (losses)*

2,186


 

782


 

1,827


 

(423)

 

 

3,906,612


 

3,613,590


 

286,566


 

6,456

 

Expenses


 

 

 

 

 

 

 
 

Personnel costs

1,214,434


 

1,131,058


 

51,939


 

31,437

 

Premiums retained by agents

1,222,274


 

1,222,274


 

-


 

-

 

Other operating expenses

803,603


 

734,901


 

42,385


 

26,317

 

Provision for policy losses and other claims

320,874


 

180,821


 

140,053


 

-

 

Depreciation and amortization

80,642


 

72,566


 

5,341


 

2,735

 

Premium taxes

37,780


 

33,645


 

4,135


 

-

 

Interest

14,899


 

8,803


 

18


 

6,078

 

 

3,694,506


 

3,384,068


 

243,871


 

66,567

 

 

 

 

 

 

 

 

 
 

Income (loss) before income taxes

$   212,106


 

$   229,522


 

$     42,695


 

$    (60,111)

 

 

 

 

 

 

 

 

 
 

*Includes other-than-temporary impairment (OTTI) losses recorded in earnings.


 

 
 
               


 

 

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